Accounting: The Language of Business (Part 5)

Republicans and Democrats have used accounting gimmicks and competing government analyses to deceive the public into believing that 2 + 2 = 6. If our leaders cannot agree on the numbers, if 'facts' are fictional, how can they possibly have a substantive debate on solutions?

J. C. Watts

Introduction to Accounting and Business

(Part D)

by

 Charles Lamson

Profession of Accounting

Accountants engage in either private accounting or public accounting. Accountants employed by a business firm or a not-for-profit organization are said to be engaged in private accounting. Accountants and their staff who provide services on a fee basis are said to be employed in public accounting.

Because all functions within a business use accounting information, experience in private or public accounting provides a solid foundation for a career. Many positions in industry and in government agencies are held by individuals with accounting backgrounds.

Private Accounting

The scope of activities and duties of private accountants varies widely. Private accountants are frequently called management accountants. If they are employed by a manufacturer, they may be referred to as industrial or cost accountants. The chief accountant in a business may be called the controller. Various state and federal agencies and other not-for-profit agencies also employ accountants.

The Institute of Certified Management Accountants, an affiliate of the Institute of Management Accountants (IMA), sponsors the Certified Management Accountant (CMA) program. The CMA certificate is evidence of competence in management accounting. Becoming a CMA requires a college degree, two years of experience, and successful completion of a two-day examination. Continuing professional education is required for renewal of the CMA certificate. In addition, members of the IMA must adhere to standards of ethical conduct.

The Institute of Internal Auditors sponsors a similar program for internal auditors. Internal auditors are accountants who review the accounting and operating procedures prescribed by their firms. Accountants who specialize in internal auditing may be granted the Certified Internal Auditor (CIA) certificate.

Public Accounting

In public accounting, an accountant may practice as an individual or as a member of a public accounting firm. Public accountants who have met a state's education, experience, and examination requirements may become Certified Public Accountants (CPAs).

The requirements for obtaining a CPA certificate differ among the various states. All states require a college education in accounting, and most states require 150 semester hours of college credit. In addition, a candidate must pass an examination prepared by the American Institute of Certified Public Accountants (AICPA).

Most states do not permit individuals to practice as CPAs until they have had from 1 to 3 years experience in public accounting. Some states, however, accept similar employment in private accounting as equivalent experience. All states require continuing professional education and adherence to standards of ethical conduct. 

Specialized Accounting Fields

You may think that all accounting is the same. However, you will find specialized fields of accounting in practice. The two most common are financial accounting and managerial accounting. Other fields include cost accounting, environmental accounting, tax accounting, accounting systems, international accounting, not-for-profit accounting, and social accounting.

Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Although such reports provide useful information for managers, they are the primary reports for owners, creditors, governmental agencies, and the public. For example, if you wanted to buy some stock in PepsiCo, American Airlines, or McDonald's, how would you know in which company to invest? One way is to review financial reports and compare the financial performance and condition of each company. The purpose of financial accounting is to provide such reports.

Managerial accounting or management accounting, uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations. Management accountants gather and report information that is relevant and timely to the decision-making needs of management. For example, management might need information on alternative ways to finance the construction of a new building. Alternatively, management might need information on whether to expand its operations into a new product line. Thus, reports to management can differ widely in form and context.

*WARREN, REEVE,& FESS, 2005, ACCOUNTING, 21ST ED., PP. 10-12* 

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